Investing vs Gambling
Investing has a positive expected value. Higher risk = higher expected return over the risk-free rate.
Gambling has a negative expected value. Higher risk = higher expected losses.
The most fundamental principle of all in gambling is simply equal conditions, e.g. of opponents, of bystanders, of money, of situation, of the dice box, and of the die itself. To the extent to which you depart from that equality, if it is in your opponent’s favor, you are a fool, and if in your own, you are unjust.
on April 2nd, 2008 at 4:00 am
Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor
on April 2nd, 2008 at 11:26 pm
So basically, your saying the relationship of Risk/Reward doesn’t hold in every situation (which I totally agree, they need to stop teaching that shit in school).
Although, if investing in risky assets nets an overall positive return, why not just invest in the riskiest assets you can find to have the highest overall return? Why do we have all these risk mitigation strategies such as diversification and simple buying of ETF’s or the market?
Also, why is it that at the WPT (world poker tourney) we see the same top players make it to the final table over and over again? Some have even won the event 10x.
Instead of trying to compare investing and gambling, the comparison should be on an individual’s makeup and psychology. The decisions to buy/sell a stock and to fold/call/raise a hand go back to the same underlying psychological conditions that is and should be unique to the individual, not the game itself =P